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Budget's job insurance scheme has big implications

Newsroom logo Newsroom 27/05/2021 Peter Dunne
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Editor’s note: The opinions in this article are the author’s, as published by our content partner, and do not represent the views of MSN or Microsoft.

The proposed insurance scheme to cover job losses needs bipartisan support, and could be a precursor to a broader insurance reform for health, writes Peter Dunne

One of the enduring factors that has contributed much to New Zealand’s political stability over the years has been the capacity of both the major parties when in government to pick up ideas more usually associated with the other, if they think they are worthwhile. The open market economic reforms of the Fourth Labour Government would be the most obvious example. Despite the noise at the time, the core of the reforms has been retained by successive governments, and not even last week’s redistributive Budget challenged those.

Similarly, National’s flagship Employment Contracts Act of the early 1990s, although reviled by many, was not so much repealed, as promised, but merely replaced by Labour’s Employment Relations Act of the early 2000s. And National took Labour’s Working for Families Tax credits, which it had derided in Opposition as communism by stealth, on board and expanded them during its last term in government.

Now, it appears, a similar process may be about to unfold with regard to social insurance, following the Budget’s announcement that the government is looking at the introduction of insurance-based protection against loss of employment, delivered via an Accident Compensation Corporation type model. Although the details are still sketchy and much work needs to be done, involving both Business New Zealand and the Council of Trade Unions, before a specific scheme can be unveiled, it does reopen once more the issue of social insurance that successive governments have dabbled with since the late 1990s.

Both parties appear to have recognised that the mounting cost of social and health services will eventually move beyond their capacity to fully fund and continue to provide as a comprehensive service. However, both have struggled to develop effective mechanisms to address the problem.

In the late 1990s, National introduced full competition in the provision of accident compensation services. In part, this was driven by the length of time it was taking to resolve ACC cases at the time, and in part by the desire to reduce the cost of accident compensation services. The move was widely interpreted as no more than ideologically driven privatisation and did not survive the change of government in 1999, although the provision that the ACC could contract with private providers for service provision was retained.

The associated debate around restoring the tax deductibility of private health insurance premiums to encourage the uptake of private health insurance to help reduce pressure on the public health system for elective surgery procedures carried on without resolution during the 2000s. Labour boosted funding for elective surgery in public hospitals in the early 2000s which alleviated the pressure for a while, but was really only temporary relief, as it could not be sustained on a longer term basis. During the term of the following National-led government a proposal for restoring tax deductibility of private health insurance premiums was developed but it foundered when health insurers declined to give any assurance that the restoration of deductibility would not lead to an increase in premium costs to existing and new clients.

The cautiously supportive response from across the political spectrum to the Budget’s social insurance proposal regarding employment protection is encouraging. It suggests that a properly developed scheme could achieve the long-term political buy-in necessary to make it viable. To this end, the government would be wise to bring the other parties in the House, as well the employers and the unions, into its thinking sooner rather than later. One important aspect to be resolved on the way to achieving this will be how it is to be funded. The general assumption is that it will require a levy-based arrangement, similar to that for ACC at present. However, to ensure that it does not look like just another a tax increase by stealth, any new levy will need to be offset against a person’s income tax liability.

All of which raises much bigger issues. The successful introduction of an employment protection social insurance scheme, using the ACC model, would open up the real possibility of the next step being the establishment of a comprehensive personal protection insurance scheme – including health, prescription medicines and dental services – all based upon the ACC’s “no fault” model. Under this plan, accident compensation would thus become a single component of a new wider personal protection scheme, but the principles upon which the ACC was founded would continue to underpin any new personal protection compensation corporation. The levies necessary to fund such a scheme could be offset against personal tax to ensure there was no element of people paying twice for their healthcare.

National health insurance schemes already exist in many European and Latin American countries, as well as in Canada and Japan. Australia’s national publicly funded health insurance scheme, Medicare, was introduced in the early 1970s, around the same time ACC was being developed in New Zealand. It is funded by a personal income tax surcharge of around 2% but is also heavily subsidised by the Federal government.

An important principle underpinning all national health insurance schemes has been ensuring wider access to available health and dental services, including prescription medicines. In New Zealand this is becoming an increasingly relevant issue as the scope of and demand for elective services grow. Also, the present funding model no longer works for dental services and requires radical change which will be near impossible to afford under current settings. And the rising costs of medicines are creating their own problems for both PHARMAC and vulnerable patients.

However, many national health insurance schemes have struggled to establish efficient mechanisms for their delivery. Here is where New Zealand’s Accident Compensation scheme provides an advantage, were New Zealand of a mind to go down the path of more comprehensive national health insurance. Both in its founding principles and operating model ACC has shown how social insurance schemes can work effectively. The government has already acknowledged this in its indications that its proposed employment protection insurance would be modelled on ACC.

Any move to a more comprehensive national health insurance scheme will not be immediate and will be predicated upon the successful introduction of the employment protection proposals in the Budget. They alone will take time to implement with a lot of consensus-building needed between the players to ensure the plan that emerges is practical and sustainable. But with the National Party now saying it has been working already on a similar idea, the genie may be well out of the bottle on this issue and another one of those landmark social changes that seem to suddenly emerge in this country after long periods of quiet brooding may be about to occur.

Universal no-fault accident compensation was a bold and radical concept when it emerged in the early 1970s, one that we would not think of turning our backs on today. The Budget’s proposed national employment protection insurance scheme – if it eventuates – could follow a similar trajectory over coming decades. And should it do so, and as the public health system’s impossible struggle for the resources necessary to satisfy the demand for new and better services intensifies, the door will open for the wider issue of a comprehensive national health insurance scheme to come onto the national agenda.

The government’s Budget steps towards better protection for people’s jobs might be “one small step” that becomes the “giant leap” and unexpected catalyst for far wider social change.

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